Taxi-hailing services that use online-enabled platforms to connect passengers and drivers are becoming common in Addis Ababa. With the help of apps, these service providers are enabling customers to hail a cab and allow users to pay flat fare in advance, contrary to the metered taxis. The number of companies that provide such services are now six, an increase from two just three years ago. EBR’s Kiya Ali explores the progress of these companies as well as the challenges facing them.
Azemera Sisay is working as a project coordinator for a local NGO located around St. Teklehaimanot Church in Addis Ketema District. Her job requires staying at the office for extended hours to finalize on tasks, but that has not been easy. She lives in Ayat Condominium, which is more than 15km away from her work place, working beyond the regular office hours was very difficult for her because of the unavailability of transport services to her area after certain late hours. This, coupled with the rising crime incidents in the city, made her work during the night very stressful.
But now, that is an old story for Azmera, who discovered that she can call for a driver she prefers right from her office using a taxi-hailing app. “The app made my life easier and enabled me to know every detail of the driver including their photo, full name, and address, which is very important for safety,” says Azmera.
Azmera is not the only one who has become a frequent user of such services. With the growth of locally developed uber-styled apps, using taxi hailing services is becoming common among many residents and organizations in Addis Ababa. Although there were only two taxi-hailing apps that were active in the capital three years ago, the number has since tripled.
ZayRide is one of the pioneers in this regard. Habtamu Taddesse, CEO and founder of ZayRide, launched the app after he experienced the poor transport service in Addis Ababa while working as an intern at the African Union. “To arrive on time at my workplace, I would hail a taxi, but there was no convenient system to do so. Besides, I would also constantly have to negotiate the price with the taxi drivers as there was a price variation for the same distance,” Habtamu tells EBR.
Such experiences prompted Habtamu to set up ZayRide in 2016 with a startup capital of USD150,000. “I had to sell my restaurant to raise the capital,” says Habtamu, who also partnered with 17 taxi owners before fully commencing operation.
Using the experience that he gained while living in the US, Habtamu, along with seven other developers, co-designed the app from Uber and adopted the platform to the context of Addis Ababa. When he tried to get a license, it was not easy as there was no legal framework that governed such businesses at the time. “I was expected to wait for six months to get a license,” he recalls.
Four years down the line, Habtamu’s company created job opportunities for 26 permanent employees while forging partnerships with 2,180 taxi owners. This enabled the company to provide services for at least 1,000 customers every day.
Many other entrepreneurs have also followed the path of ZayRide, developing taxi-hailing apps. Out of the current batch, Ride is their major competitor. Majority of them use a digital platform-based business model, which creates value by connecting individuals or parties.
For many years, taxi businesses in different countries have allowed customers to hail a cab with the help of apps. But taxi-hailing services upped the game not only by allowing users to pay using the app, but by also introducing flat fare in advance, contrary to the metered taxis.
The same trend holds true in Ethiopia where the cost for a ride per kilometer using taxi-hailing apps is ETB10 paving way for more convenience and transparency, in addition to lower costs. Keeping this in mind, taxi-hailing companies earn 10Pct commission from each transaction, while the remaining (90Pct) goes to the drivers.
Digital platform-based businesses have become common worldwide due to evolution of the Internet. In fact, many industries are moving toward platform-based models. Users of such platforms include industry giants, such as eBay, Amazon and Facebook. Transportation startups such as Uber, Lyft and BlaBlaCar have also adopted this business model.
Likewise, Ethiopian taxi-hailing service providers, like Ride and Zay Ride, are also using platform-based business models to increase productivity and ensure the efficient use of their assets while minimizing their capital expenditures. But some taxi-hailing businesses, which are platform-based and have similar features as Uber, own most of the assets that are core to their businesses. This is exemplified through Polo Trip’s experience, whose mother company has been in the car rental business for 14 years. The company joined the taxi hailing business using its own 25 cars with a startup capital of ETB15 million and forging a partnership agreement with 825 taxi owners.
“We have been in the car rental service for the past 14 years. Now we have added value to our services. As for the license, we did not experience much trouble in acquiring one as we partnered with drivers who were willing to use our service,” explains Feyisel Abderuf, owner of Polo Trip.
Of course, a digital platform-based business model is instrumental in avoiding high upfront capital cost, which minimizes barriers to entry and allows for rapid diversification of service being offered. And businesses are starting to take the opportunity. For instance, Zay Ride submitted a proposal a while back to the Federal Transport Authority to work with motorcycle owners. In addition, ZayRide is looking for opportunities to start a ride service in Bahir Dar, Mekelle and Hawassa. Its nearest competitor, Ride, is also negotiating with aviation companies to provide hailing services for those that seek air ambulances.
Even better, platform-based companies are also able to expand their operations outside the country, which allows them to establish a global brand shortly after being launched. Zay Ride, for instance, is extending its service by partnering with 200 drivers in Liberia.
Although digital platform-based businesses are fit for startups with low capital base, there are companies that embarked on the platform-based business with a huge capital. Pick Pick, which became operational a year ago, is the only company in Ethiopia in this regard. When Pick Pick started their business, the firm registered 1,500 people who were willing to save 30Pct of the total value of a car, which is ETB 610,000, the remaining covered by a loan secured from United and Dashen banks, while saving two percent as a fee for the platform developed by the company.
The project was not successful as per the plan of the company mainly because of the shortage of foreign currency. They only bought cars for 200 of those who registered, while failing to do the same for the remaining 1,300 people, all of whom had also registered and saved 30Pct of the total cost of the car.
Digital platform-based businesses are not immune to problems. Internet interruption is the biggest challenge faced by taxi-hailing service providers. “Our company [ZayRide] lost ETB2.1 million when the internet was off for a week,” says Habtamu. Polo Trip shared the same experience. “Whenever there is internet interruption, it costs us 35Pct of our income,” says Feysel.
Although taxi-hailing businesses gave more convenience to the customers, they created a difficult environment for the regulatory body to adapt to. This is attested to by the chain of events that followed the attempt by one of the taxi-hailing companies to expand its services using code-3 vehicles, which are under a license for other purposes. This attempt by the company was not well received by the authorities.
In addition, the government accused the taxi-hailing service providers for charging inflated prices. “Apart from creating jobs and a new market, such businesses create unfair competition among taxi service providers,” argues Esayas Ayele, director of Transport Service Improvement Directorate at Addis Ababa Road and Transport Bureau. “Some of the companies are conducting their business using personal cars without paying tax and fare is not also equal across all ride service providers.”
To avert such problems, the City Administration is now drafting a legal framework that is expected to be approved this financial year. The new law will ban code-3 vehicles from engaging in such services. In addition, the law will enforce business owners to use servers that are found only in Ethiopia as well as to get training on how to handle customer services, first aid and use of the app.
8th Year • Sep.16 – Oct.15 2019 • No. 78